QUESTION Determine the unit product costs of the Deluxe and

QUESTION: Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.

Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company’s two product lines appear below:

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Required:

1. Determine the unit product costs of the Deluxe and Standard products under the company’s traditional costing system.

2. The company is considering replacing its traditional costing system with an activity-based absorption costing system that would have the following three activity cost pools:  

Determine the unit product costs of the Deluxe and Standard products under the activity-based absorption costing system.

	Deluxe	Standard
Direct materials per unit	$	57.00		$	45.00
Direct labor per unit	$	15.00		$	12.40
Direct labor-hours per unit		0.70	DLHs		1.40	DLHs
Estimated annual production		10,000	units		50,000	units

Solution

Req a: Pre-determined OH rate per DLH Estimated Overheads 619000 Divide: Estimated dLH 77000 OH rate per DLH 8.04 Unit Product cost Deluxe Standard Material perr unit 57 45 Labour ccost per unit 15 12.4 OH per unit Deluxe (0.70*8.04) 5.628 Standard (1.40*8.04) 11.256 Unit product cost 77.628 68.656 Req b: STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Supporting labour DLH 462000 77000 6.00 Batch setups Setups 99,000 300 330.00 Safety testing Tests 58,000 100 580.00 OH cost per unit Deluxe Standard Activity Rate Activity OH Activity OH Supporting labour 6 7000 42000 70000 420000 Batch setups 330 200 66000 100 33000 Safety testing 580 30 17400 70 40600 Total OH 125400 493600 Divide: Units 10000 50000 OH per unit 12.54 9.872 Units product cost Deluxe Standard Material perr unit 57 45 Labour ccost per unit 15 12.4 OH per unit 12.54 9.872 Unit product cost 84.54 67.272